Lululemon (LULU) – Valuable Brand & Company Data – April 13, 2024

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Lululemon (LULU) – Valuable Brand & Company Data – April 13, 2024

Store Traffic Before & After Alo Store Openings

Morgan Stanley published research this week on same-store traffic trends for Lulu stores. It covered 5 markets and measured traffic changes for Lulu stores where a nearby Alo store opening occurred. The takeaway is positive. 6 months before and after an Alo opening, Lulu’s average store traffic actually accelerated by 2 points. How can this be? While Alo (and Vuori) continue to grow in popularity, so does Athleisure as a percent of total apparel spend. So while these two brands are succeeding, that is in no way preventing Lululemon from finding more of its own success. It was never going to own an entire $350 billion market, and perhaps these two budding brands are raising awareness and purchase intent for the category overall. That’s good for the king of this space, and that king is clearly Lululemon. And? The king is trading near 6-year EBIT multiple lows (thanks for the chart, Tikr.)

Source: Brad Freeman – SEC Filings, Company Presentations, and Company Press Releases

Piper Sandler Teen Survey for Lulu Specifically

  • Overall, Lululemon maintained the #3 spot in apparel (#3 for woman and #5 for men), but mindshare fell by a point Y/Y. 
  • Among upper-income individuals for apparel overall, it gained 0.5 points of share Y/Y with women and lost 0.35 points with men.
    • It remains the top overall brand for affluent women and #3 for men. 
  • Among average-income individuals for apparel overall, it lost 1.20 points of share. Piper attributes this to its premium pricing point and fragile macro.
    • I agree, and also think Q4-2023-Q1 2024 inventory issues at some of its stores amplified this result.
  • #1 in brands starting to be worn for females and #4 for men. It is not in the brands no longer worn section.
  • For athletic apparel, it stayed #1 overall among affluent females and took a whopping 2.75 points of incremental share Y/Y. It’s #4 for affluent men and #2 overall behind Nike.
    • Alo rose to #7 for athletic apparel brands among affluent females. 
    • Vuori reached #10 for favorite athletic brands among affluent males.
  • Within handbags & accessories, this company continues to kill it. It moved from #6 to #5 for handbags with 6% favorite brand market share (vs. 2% just 2 years ago). It gained 2.25 points of additional share here Y/Y.
  • Piper Sandler maintained its overweight rating on Lulu and a $470 price target following the release of this new data.

This data isn’t uniformly positive, but it is predominantly positive and more upbeat for Lulu than most of the other brands mentioned. I think improving the inventory situation this quarter, easier comps through the year and hopefully improving consumer confidence as icing on the cake will make the negative sentiment here prove short-lived. The company has been a stellar performer for multiple decades and across cycles. One very small annual guidance miss is not going to chase me out of this one. I’d need to see much more evidence of brand deterioration, which I don’t expect to come. We shall see.

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